Little Christmas cheer for retailers

Consumer confidence is up, and interest rates down since last year’s festive season, but this has done little to cheer up our major retailers ahead of the Christmas sales that will largely define their fortunes for the year.

This week, Harvey Norman founder Gerry Harvey, said he expected some rivals to collapse once the clearance sales were over in the new year and said the performance of his business was dependent on whether the warm weather held.

More retailers are expected to collapse as shoppers stay away. Photo: Edwina Pickles

"If we have a really hot period and we sell a lot of air conditioners, then we'll definitely beat last year," he said. "If it's cold every day then we'll battle.’’

It's make or break time, a bad Christmas could ruin a retailer's year. Some will make losses, some will fail - and the threat of online has never been stronger. BusinessDay's Eli Greenblat looks at retail's winers and losers in tomorrow's Sydney Morning Herald, The Age and on this website.

AMP Capital chief economist Shane Oliver said it looked like Christmas spending would be ‘‘okay, but still not great".

‘‘Consumer confidence is up from its lows and interest rates are down, with hopefully the RBA likely to deliver another cut next week, but against this - job insecurity, wariness about excessive debt, and reduced levels of wealth - are continuing to keep consumers a bit cautious.’’

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Rival department stores, David Jones and Myer are both in agreement on their prospects for Christmas, with sales expected to do little more than match last year’s efforts.

‘‘We have planned for a flat result given we’ve got deflation of around 2 per cent, we have to work hard to stay still is probably the best way to describe it,’’ David Jones chief executive Paul Zahra said last week.

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"We are looking for Christmas to be at least flat, maybe better, and have bought stock on that basis and have done our planning on that basis," said his counterpart at Myer Bernie Brookes.

Both stores have upgraded their online presence recently and are wrestling with major global brands to reduce prices in order to combat the customer migration to cheaper rivals on the web.

Commonwealth Bank said that, based on the credit card data it collects from its customers, it was clear that Australian consumers had gravitated towards new overseas market entrants like Zara, La Senza GAP and Topshop as well as purely online players.

An eBay spokesperson, Sandy Culkoff, said the company was expecting double-digit growth from last year’s record performance. On one day alone, Sunday, December 11, last year, eBay reported that more than 1.8 million Australians visited its site and purchased more than 250,000 items.

Even a local success story such as Oroton, which gets more than 10 per cent of its sales online, was surprisingly cautious, with chief executive Sally Macdonald saying the company’s strong performance since mid-year was ‘‘not a meaningful indicator of the year ahead’’.

She said the company was ‘‘cautiously optimistic about the upcoming Christmas and Chinese New Year trading period’’.

A similar sentiment was expressed by Kathmandu, which also reported strong sales in the lead-up to Christmas, and JB Hi-Fi.

‘‘We haven’t given any guidance,’’ said JB Hi-Fi chief executive Terry Smart. ‘‘It’s way too early to tell, we’ve got the big 4-5 week trading period ahead of us’’.

But online, and foreign, rivals are not the only competition which has been draining spending away from local retailers.

Industry experts have pointed out that it is retail spending that has been weak, not the consumer, as shown by the amount of money being spent on overseas travel.

Research from investment bank Citi said an extra 1.1 million Australians travelling overseas over the last two years had acted as a drain on retail sales.